Swiss monetary policy in the European environment

Jean-Pierre Roth, Chairman of the Governing Board

In the last thirty years, Switzerland and Austria have pursued differing monetary policy strategies. Whereas Austria fixed the schilling exchange rate, Switzerland has maintained a floating exchange rate for the franc. This enabled the Swiss National Bank to conduct an autonomous monetary policy. Why did two countries which have much in common and which both consider economic stability to be of prime importance choose to steer a different monetary policy course?

In the case of Switzerland, there were three main reasons in favour of a floating exchange rate: the role of the Swiss franc as an international investment currency, the markedly lower interest rate level compared with that in other countries and the possibility to pursue an autonomous monetary policy oriented to the specific needs of the country. From the National Bank's point of view, the chosen path best suited the needs of Switzerland. Times change, however. With increasing globalisation and also due to political decisions, the economic integration between Switzerland and Europe will continue to intensify. In addition, the more the euro establishes itself internationally as a stable currency, the more the interest differential between Switzerland and Europe might diminish. As a consequence, factors that have so far supported an autonomous policy would gradually lose importance.

At present, nothing points to such a development, however. Conducting an autonomous monetary policy with flexible exchange rates still seems to be the strategy best suited for Switzerland. If one day a change in strategy was considered, its advantages and disadvantages would have to be compared in an unbiased manner. It is certain, though, that simply pegging the franc to the euro – the way the Austrian schilling was linked to the German mark – would not be a credible solution either now or in the future. Only Switzerland's accession to the European Monetary Union, and thus to the EU, could convince the financial markets of the permanence of the Swiss franc's peg to the euro. Until today, Switzerland has not been willing to take this step.